Jobs growth in the U.S. continued at a stronger-than-expected pace in February, and the average hourly earnings increase, while slightly lower than expectations, remained historically high. Overall, employment data suggested that a 50-basis point hike in Fed funds by the Federal Reserve Open Market Committee could still be in play.
However, next week’s reports on consumer price index inflation, retail sales, and the producer price index will have a strong influence on the decision. And not all the signals from the job market are positive.
Nonfarm payrolls rose by 311,000 last month, according to the Bureau of Labor Statistics (BLS), but the totals for December 2022 and January were revised downward by 34,000 jobs.
In actuality, the year-over-year job growth rate has fallen from 5.2% year over year last February to 2.9% in February 2023. Looking at the data over a longer period, job growth has been on a “relentless decline,” Dan North, senior economist at trade credit insurer Allianz Trade North America, told CFO. (See chart, Trajectory of Changes in Monthly Nonfarm Payrolls.)
Average hourly earnings for February rose 0.2%, or 4.6% year over year, up from 4.4% in January. However, "at an industry level, most major sectors saw average hourly earnings decelerate in February, and wages fell for nondurable goods manufacturing, education and health services, and wholesale trade," according to a note from BofA Securities.
“People seem to be relieved that there’s a little bit less inflationary pressure” from wages, said North. But 4.6% is still high compared with the roughly 2% average over the past couple of decades. And it still leaves wage earners "underwater" when compared with inflation of 6.4%.
“People are still suffering,” said North.
Ironically, though, a recession is still likely. “Historically, if you look at the last six recessions, the economy created jobs right up until the first month of the recession or the first month after,” said North.
“For employers, the last thing you really want to do when the economy is growing is cut jobs. It's a very hard thing to do, psychologically and societally, to lay somebody off,” North said. Many businesses usually wait to see definite indicators of negative GDP growth before starting to cut workers.
In the first quarter AICPA & CIMA Economic Outlook survey of 438 CPAs, released on Wednesday, 45% of finance leaders said they have the right number of employees, up from 39% the previous quarter. Nine percent of business executives said they had too many employees, an increase of a single percentage point. Almost a third of business executives (32%) said they were taking steps to bring down staffing costs, and about 17% had instituted hiring freezes or ceased recruitment.
“The labor market continues to be strong, but we know around a third of our survey base is taking steps to rein in staffing costs (largely for now through hiring freezes). — Tom Hood, AICPA & CIMA
“The labor market continues to be strong, but we know around a third of our survey base is taking steps to rein in staffing costs (largely for now through hiring freezes),” said Tom Hood, the AICPA & CIMA’s executive vice president for business engagement and growth, in an email to CFO. “So that may be a leading indicator that could show less robust numbers in future months.”
The granular payroll data from the BLS showed that the number of finance and insurance employees fell 10% in February, while accounting and bookkeeping services increased employees by half a percentage point.
Yet finance leaders in the AICPA survey, polled during February and early March, ranked “availability of skilled personnel” as their number two challenge, said Hood.
Notable overall U.S. job gains in February occurred in leisure and hospitality, retail trade, government, and health care. Employment declined in information as well as transportation and warehousing.
U.S. labor force participation actually ticked up one-tenth of a percentage point last month, which helped the unemployment rate rise to 3.6% (from 3.4% in January).
While there are still more than 10 million job openings in the U.S., according to Job Openings and Labor Turnover Survey data, talk of a recession may be pulling the people who had been on the sidelines back into the job market, said North. They may be saying, "I better get a job while I can," North said.
When a central bank raises rates to slow inflation, it's basically also trying to slow the economy. And that works every time. — Dan North, Allianz Trade North America
Quits fell by 207,000 in January, and layoffs and discharges were up by 241,000. Data from ZipRecruiter showed that the technology and finance fields have had among the largest pullbacks in job listings. Tech listings are returning to pre-COVID levels after being 90% above those levels in May 2022.
Weekly jobless claims rose to 211,000 for the week ending March 4, the highest level in five months. And they bottomed out back in April 2022.
“The Federal Reserve has raised the Fed funds rate at the most aggressive pace in the modern era,” said North. “And an economy just can't survive that aggressive increase in interest rates. When a central bank raises rates to slow inflation, it's basically also trying to slow the economy. And that works every time.”